Snowy Hydro, the massive energy utility that is about to be 100 per cent owned by the federal government, is seeking to boost its renewable energy portfolio by contracting 800MW of wind and solar capacity.

“The initial aim is to procure 400MW of wind and 400MW of solar off takes,” the document states, although the company may change its mind on the 50/50 split between wind and solar depending on the offers made.

“Snowy Hydro’s goal is to construct a portfolio of wind and solar offtakes such that the resulting portfolio benefits from diversification of fuel sources (wind / sun), geography (across NEM States, latitude and longitude) and supply profile (intra-day, week, month and season).”

The call for 800MW of capacity comes as Snowy works on its final feasibility study for the massive Snowy 2.0 pumped hydro scheme, which is likely to cost upwards of $6.5 billion, depending on its final engineering studies.

However, some say the project makes little financial or environmental sense if there is not a majority of renewables in the main grid, but its soon-to-be sole shareholder, the Coalition government, argues that any such target would be “reckless”.

So, this call for expressions of interest is an interesting and major step forward for Snowy Hydro, as it will increase its exposure to wind and solar farms significantly.

To date, the only contracts it has made are with the 100MW solar farm at Tailem Bend in South Australia and with the first stage of the 212MW Lincoln Gap wind farm near Port Augusta. Both are under construction.

But during testimony to a Senate Estimates hearing last week, Snowy Hydro CEO Paul Broad – apart from saying that pumped hydro could clearly outperform a new coal plant – gave some indication of the sort of prices the company expected to see in the tender.

“The price that we’re getting for wind and solar has come down by an order of magnitude,” he said. “We’re now getting prices in the 40s, 45s to 50s (dollars per megawatt hour).”

Broad also indicated that the wind and solar plants contracted by Snowy Hydro could be used to create new “firming” contracts, as other retailers are doing.

“On that firming product we have wind at about $40, and with a firming product of around $40 as well—around $80. Those costs are coming down rapidly.”

These estimates are backed up by new documents released by Snowy Hydro that suggests wind (including a price premium for firming) is approx $70 – $80/MWh, and solar with a price premium for firming is about $77 – $99 per MWh.

This compares to the price of new coal plants of $78 – $120/MWh depending on capacity factor, and the cost of gas, assuming sufficient quantities can be sourced on existing infrastructure, of $100-$125/MWh.

RenewEconomy understands that some retailers are demanding PPAs for wind or solar in the $30s/MWh, although there is no indication that they are getting that.

The lowest that has been revealed has been a contract in low $50s/MWh, by Origin Energy for the Stockyard Hill wind farm in Victoria, which at 530MW will be Australia’s largest.

Snowy Hydro will offer contracts, known as power purchase agreements (PAA) for 15 years to the wind and solar farms in its tender, and will consider energy only, energy plus LGCs, fixed price, or escalating at 65 per cent of the CPI.

Recent PPAs struck for other wind and solar farms by other retailers have attributed zero or little value to the LGCs, the certificates generated under the renewable energy target.

Contracts awarded to existing wind or solar farms will be applicable from January 1, 2019, while contracts for new facilities will be in place once they are completed.

In its EOI documents, Snowy Hydro notes that it owns and operates the 4,100MW Snowy Mountains Scheme, the 300MW Valley Power gas-fired power station, the 320MW Laverton North gas-fired power station and the 667MW gas-fired generator at Colongra in NSW.

It also owns and operates diesel fired peakers in South Australia, and since the purchase of Lumo Energy (to add to Red Energy), it has become the fourth biggest energy retailer in the National Electricity Market.

Note: The formal transfer of ownership of the NSW and Victoria government stakes in Snowy Hydro to 100 per cent owned by federal government will take place from July 1.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

39 Comments

Tim Buckley 10 months ago

Brilliant, great article again Giles. Renewables now the low cost source of supply, even with the ludicrous assumption you need to provide 100% firming on every unit of electricity produced. Great to see the now 100% Federal Government owned Snowy Hydro replying on facts rather than buying into the farce of Federal LNP only coal energy policy chaos! What a NEGative bunch of fossil fuel luddites down in Canberra!

Jonathan Prendergast 10 months ago

This is a game changer on many levels

Tim Forcey 10 months ago

Why?

Jonathan Prendergast 10 months ago

New Renewables. Political direction of Snowy & Fed Gov. Turning Snowy from a seller of Caps to actually pumping from renewables (helping renewables’ revenues) and supplying at peak times to balance renewables.

Alastair Leith 10 months ago

But is it more economic to build Snowy 2 vs smaller scale off-river PHES with better vertical fall and much less horizontal run and outside of national parks? And no tunnels, did I mention how expensive tunnelling is?

Jonathan Prendergast 10 months ago

Yes, but I was commenting on the article about 800MW of new renewables (wind and solar).

Notionally, I would also prefer a series of distributed pumped hydro projects, particularly one in SA rather than transmission lines from Snowy to SA. But I don’t know the cost benefit comparison.

Mike Westerman 10 months ago

How many centuries do you need to sell 800MW x 8h/day x 365days/y @ $40 margin to recover an economic return on $6.5B? (Hint: you never do)

Jonathan Prendergast 10 months ago

69 years if that is indeed the business case. I presume it gets as much selling caps and futures contracts as it does actual arbitrage. Not that I am an advocate for the project. But I am for them contracting 800MW of new renewable capacity.

Cooma Doug 10 months ago

The concept requires 30% of the Snowy 2 additional plant while effectively increasing the capacitive factor by 50%. The storage can be used at a peak response 2.5 times the pump energy. When you thrash those numbers through the wholesale market profiles the 40 dollars profit will be more like 120. We are talking about peaking plant generation.

This is not like buying and selling carrots at the Flemo markets.

RobertO 10 months ago

Hi Mike Westerman, These back of the envelope calculations are a little off (it is not about the 800 MW, it not about the 8hr/day, anyway insurance runs 24 hr /day and it not about the $6.5 billion).

I believe the $40 is about setting the NEG price so coal knows what to charge RE for the guarantee.

Mike Westerman 10 months ago

My point in using inflated generation figures was to show S2 numbers don’t compare well with other projects when looking at the firming market. There is no doubt, as with Tas, that for long term back up of wind, S2 would be brilliant but that is neither consistent with Fed policy or a priority at present. These factors just dampen investment where it is needed.

palmz 10 months ago

So would we be able to call the contracted wind and solar base-load…..RE

Baseload RE…great stuff….vs the Unreliable and Intermittent Old Clunker Coalers

小杜 (xiao du) 10 months ago

Baseload – aka inflexible generation 😉

Rod 10 months ago

I mistook your post as one of those “but when de sun don’t shine and de wind don’t blow? “type. Indeed, in high % RE grids the notion of base-load is funny.

BushAxe 10 months ago

Even before Snowy 2.0 they have significant PHES at Tumut 3 (600MW) which could be utilised far more now RE contract prices are down to $50-70MWh, it’s a no brainer really. Tailem Bend has approval for another 100MW and Lincoln Gap has 86MW in stage 2 both of which could be generating by 2019.

Malcolm M 10 months ago

Yes I expect the main point of this tender is to utilise the balancing of 600 MW of pump at Tumut 3, because Snowy 2 is years away, whereas this tender is for delivery 1 Jan 2019 if available. If there are immediate retail markets for the renewable power, it would be sold direct to their customers, if not it would be stored.

To me the mystery is how they can offer such a tender to markets other than in NSW, because during the main pump hours of 12:30 am to 5:30 am the inter-connectors from Victoria and Queensland are usually constrained.

Greg Hudson 10 months ago

”12:30 am to 5:30 am the inter-connectors from Victoria and Queensland are usually constrained.” If this is indeed the time they will be pumping, then they won’t be getting any power from any PV sites anywhere, meaning that they can only source from Wind (mostly from SA) and the rest from Coal (think Hunter and LaTrobe Valleys)… Not exactly clean energy sources. What FF lobbyist dreamed this plan up, and whispered it in Malcolm’s ear ?

Hettie 10 months ago

Why on earth would interconnectors be constrained at the time of lowest demand? To me, that makes no sense at all. But then, as you all know, I’m no engineer, no physicist. Just curious.

palmz 10 months ago

I think he means that the regulator dose not allow the interconnector to operate at full capacity, due to the low demand (they don’t like any one generator/ or inter-connector to make up more than 10% of demand i think)

My understanding is that they want to have enough reserve in the event that the largest operating generator fails. This is to avoid forced load shedding, in these events.

You will need to find someone more technical to explain it better.

Hettie 10 months ago

Thankyou. That makes sense. The last thing I want is to be confused by technicalities. The broad brush will do very well.

Rod 10 months ago

I still say the State governments have rocks in their collective heads for selling their share. In the new World, with or without the NEG, firming will be very valuable. And the cynic in me can see the whole lot being privatised at the first opportunity.

Jonathan Prendergast 10 months ago

It’s a classic capitalist move. Aquire an undervalued asset, change the strategy, commence implementation, then sell once the higher value is reached for great profit.

Tim Forcey 10 months ago

Yeah how could a State Gov resist selling, especially with elections always approaching. The more curious thing is why a Federal Gov would want to buy… Perhaps to sell later – is that what you are saying?

Hettie 10 months ago

I guess your average punter still does not understand that selling State assets is a very bad idea, although NSW was not very pleased with Mike Baird for flogging off – sorry, leasing, the poles and wires that we pay so much for.

Joe 10 months ago

It is COALition DNA to privatise OUR assets.

RobertO 10 months ago

Hi All, This is the future of the COALition policy where we have RE at $40 and firming (Does this sound like the NEG) at $40 all to keep the prices of RE higher than they need to be (all so they can pay off the Snowy 2 project without doing the business case. I like Snowy 2 but I am not confirmed as a supporter of it (I am 55% for and 45% against).

Phil NSW 10 months ago

I think the business cases is likely to be predicated around certain premiss that by the time it is built will no longer be valid. Buying RE capacity is the future of PHES so it can be reused in the evening once the clunkers are shutdown. I wonder if Frydenberg was consulted :):).

RobertO 10 months ago

Hi Phil NSW, I think that the coal ash group (RWNJ”S including cowpoo joice, rev head kelly, babbott, and other) were not consulted. I suspect the shock jock or jocketts were also not consulted and all will be blabbering at the mouth in the next few days as they all realise 2 toungs has conned them all. RE is not on their agenda at all, we must stand (in the way of) together to stop RE. I still think the pricing is to pay for Snowy 2 by keeping the prices of RE high and supporting the NEG which will see RE paying for coal (and a bit of Hydro) and stuff the consumers. The NEG will put $40 / MWhr for RE so the Fed Gov claim of prices dropping is spin (if they do drop it is in spite of what the Fed Gov, they tried to stop RE ).

Phil NSW 10 months ago

What is a double (double cross)?

RobertO 10 months ago

Hi Phil NSW I think 2 toungs just did this by accident. Even boss fridenberg has been reassuring the coal ash group (our RWNJ’s, babbott, rev head kelly and cowpoo choice and co) that emissions will (not) rise above the 26% – 28% that they have in mind. Hopefully they will be gone shortly and we may even have a target of 50%

Hettie 10 months ago

Now, another great article, if puzzling. The Feds are so vehemently anti renewables. Is current management of Snowy Hydro going to be able to get these deals signed off before July 1? In the process, causing several RWNJs to have fatal appoplexies. Please.

Steven Gannon 10 months ago

Is it possible to save some water by using the pumped hydro at high capacity and therefore freeing up water for environmental flows to the Snowy and Murrumbidgee? It seems logical, any ideas?

Alastair Leith 10 months ago

Snowy was always about agricultural water use more so than electrical generation. Ag flows and redirection still trump electricity demand issues in this country.

brucelee 10 months ago

Another own goal for the LNP. Acquiring Snowy means the business of energy, renewables and the contracts can now be prosecuted in senate estimates, where the truth about costs come out.

Snowy executive, HAVE to act in the best financial interest of its shareholders and procure the cheapest pumping electricity, and they HAVE to tell us about where and how much they pay. Renewables.

GOALLLLLLLL!

5NRG 10 months ago

With the amount of Hydro they already manage, this decision is one of the best to sustain their Hydro business by using it as Storage System as well….Great decision!

dhm60 10 months ago

From the linked Snowy Hydro EOI, we have: “Regardless of views on climate policy or the future energy mix, what’s clear is that the cost of building wind and solar is cheaper than new coal generation.” And “Our current modelling shows the new entrant price of new generation (this is the levelised cost of energy) to be the following: 1. Wind (including a price premium for firming) is approx $70 – $80 MWh 2. Solar (with a price premium for firming) is approx $77 – $99 per MWh 3. new HELE coal is approx $78 – $120 MWh depending on capacity factor 4. Gas, assuming sufficient quantities can be sourced on existing infrastructure is approx $100 – $125 MWh”.

as brucelee posted below: “Another own goal for the LNP. Acquiring Snowy means the business of energy, renewables and the contracts can now be prosecuted in senate estimates, where the truth about costs come out.” Ho, bloody ho, Mr. Kelly.